Instant Payments considerations in the U.S. and Europe

Businesses in the U.S. and Europe are placing greater emphasis on payments technology, and demand for instant payments continues to grow year over year. Datos Insights research has shown that 87% of U.S. and 90% of European midsize and large businesses consider instant payments either very important or important to their organization.

Increasingly, businesses understand a wider variety of use cases for instant payment, which has resulted in year-over-year increases in demand for access to better payment technology and real-time capabilities from their financial institutions (FIs).

Demand continues to increase among businesses. However, some, but not nearly enough, FIs are offering instant payment capabilities in the U.S. Even in Europe, where regulations have accelerated FIs’ real-time offerings, many banks are not effectively positioning the value proposition or use cases for instant payments.

Due to the high cost, risk, and long time it takes to develop a new instant payments solution in-house, an increasing number of FIs realize they need vendor partners to continue modernization efforts while also taking action to educate clients on potential use cases and invest in the infrastructure and value-added services that enable and expand the return on investment for offering real-time capabilities. FIs should consider a few of the following when preparing to integrate instant payment capabilities for commercial clients.

Use Cases

Businesses are increasingly recognizing a broader set of use cases for instant payments. In the U.S. and Europe, businesses began using instant payments with limited use cases, such as past-due or emergency payments, but this is quickly changing.

Now, businesses are recognizing the importance of instant payments to improving customer/recipient satisfaction, cash flow management utilizing “just-in-time” payments, online transactions such as immediate returns, payroll improvements, and beneficial use cases within any business that deal in a high volume of low-value payments. Many businesses are also excited at the prospect of having request-for-payment capabilities.

Businesses are already finding use cases across organizational size and industry vertical, but more proven use cases that benefit an organization and its customers are likely to come. As use cases continue to expand, so too will the demand for instant payment capabilities. FIs need to help meet business demand by offering instant payments and through education to help elaborate and expand existing use cases, or they risk losing relationships and opportunities to competitor FIs or fintechs.

Modernization Hurdles

Implementing instant payments poses some inconveniences for FIs and their business clients. With both U.S.- and European-based businesses, 47% consider operational or process change the biggest hurdle to adjusting payment methods or processes.

For FIs and their business clients, implementing instant payments entails technical, integration, and workflow changes, underlined by costs and resource allocation. An added hurdle for FIs is that they are tasked with overcoming these challenges internally while also assisting clients with a similar set of hurdles. FIs considering integrating instant payments need to align resources and priorities to prepare for challenges associated with integrating existing infrastructure with newer payment technologies.

Payments-as-a-Service (PaaS)

PaaS can accelerate an FI’s launch and expansion of instant payments. FIs grappling with allocation of cost, IT resources, and time to market should consider a PaaS solution.

Enabling a PaaS solution requires a core infrastructure that is cloud-native, which enables the PaaS solution to function as a payments layer within the existing technology stack. When an FI goes with a PaaS solution, it can expedite time to market with instant payment offerings as well as other ancillary services with lower cost to the FI, ultimately gaining the availability and scalability of a real-time offering with lower cost of ownership while maintaining security considerations.

PaaS brings greater agility to offering instant payments for implementation and for preparing for an increasingly competitive market and complicated payments technology going forward.

Final Thoughts

Businesses are clear that instant payments are important. Moreover, our research also shows that 42% of businesses are willing to leave their existing financial services provider to another one or even a Fintech payments service provider in order to gain access to instant payments. If FIs don’t want to miss the instant payment opportunity, they need an effective strategy to modernize existing payment products for instant payments and data sharing while simultaneously preparing for ongoing technological advances and shifting regulations.

As the migration to ISO 20022 formats continues, and as business demands evolve to include more advanced payment capabilities, finding the right vendor partner to enable pinpoint allocation of resources for best-in-class products has never been more critical.

PaaS solutions can be the right choice for many FIs, and especially credit unions and community banks in the U.S., seeking to expedite integration of a robust payment offering that includes a 24/7/365 instant payments solution while also maintaining industry best practices in fraud prevention and anti-money laundering controls.

For more information on instant payments, PaaS solutions, and vendor partnerships, reach out to Erika Baumann at ebaumann@datos-insights.com.

Download full reports of Instant Payments:

• Instant Payments in the U.S.: How to seize the opportunity
• Instant Payments in Europe and the U.K.: How to seize the opportunity